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Vedanta Warns of Indian Aluminum Output Cuts on Coal Curbs

(Bloomberg) -- India’s biggest aluminum producer may be forced to reduce output if restrictions on coal supplies to the non-power sector drag on for another week, according to Vedanta Ltd.’s chief executive officer for metals business in the country.

The group has just one day’s worth of coal stockpiles left at its Jharsuguda smelter in the eastern state of Odisha after a unit of state-run monopoly Coal India Ltd. stopped supplies from May 18, Samir Cairae said. Mahanadi Coalfields Ltd. last week issued orders to halt deliveries to all non-power customers following a government directive to prioritize the electricity industry.

“The question now is how to run the plant,” Cairae said in a phone interview Tuesday. If the coal shortage lasts another week, the company will be forced to shut some units at the 1.7 million tons a year smelter. “There will be no other industrial solutions,” he said.

The government has prioritized supplies to power stations to boost their inventories, which are near the lowest since mid-February. The decision is set to bring industries that generate their own electricity using coal to a standstill, the Indian Captive Power Producers Association said this week.

Temporary Measures

An aluminum smelter once shut down needs at least six months to restart, Cairae said. Vedanta will take temporary steps such as purchasing electricity from the grid to prevent a shutdown, Cairae said. The measures will bring down production, but keep the plant running.

A shutdown would not be on the cards for Vedanta because of the time required to restart the facility and a “better way would be to import coal even if they operate at lower margins as aluminum prices are still very good,” Bhavesh Chauhan, an analyst at IDBI Capital Markets & Securities Ltd., said by phone from Mumbai. The only concern remains “whether it is logistically possible to import high amounts of coal to the plant.”

Jharsuguda requires 17 million tons of coal a year to generate electricity at its captive power plant, half of which comes from contracts with Coal India, Cairae said. It sources the rest from imports and auctions by Coal India. Vedanta imported 2 million tons for the smelter in the year through March, he said.

“We hope this matter is resolved soon and we don’t have to import more. It’s not a sustainable solution for us,” Cairae said.

Shares of the company extended their decline in Mumbai following deadly protests at its copper smelter in southern India. The stock slid 2.1 percent to 247.40 rupees on Thursday, the lowest level since June.